Texas law requires that TRS conduct a statutory rule review at least once every four years for each chapter of its rules. From September 2016 to October 2017, TRS engaged in a review of the rules governing the 403(b) certification and registration program (34 Texas Administrative Code, Chapter 53), including the maximum fees, costs, and penalties that certified companies may charge for their products. To conduct the rule review and identify rule amendments, staff undertook data gathering and analysis and received extensive stakeholder input.
In October 2017, the TRS Board of Trustees adopted final amended and new 403(b) program rules. These amended and new rules are effective December 12, 2017, except for the amended maximum fees, costs and penalties (§53.3).
The changes to the maximum fees, costs and penalties will take effect for products and investment options registered with TRS on or after October 1, 2019, and sold on or after November 16, 2019.
Below is a summary of the major substantive and non-substantive amendments to the rules, organized by effective date, and additional information.
Certification Fee Increase
Tex. Rev. Civ. Stat. Art. 6228a-5 authorizes TRS to charge a company certification fee of up to $5,000 per five-year certification period. The certification fee is to recover the cost of administering the certification program, which includes the cost of developing and maintaining the list of certified companies, implementing the statutorily required annual demonstration process, and addressing legal and logistical questions involving certification. The certification fee is set at $5,000 per five-year period.
Product Registration Fee Increase
Tex. Rev. Civ. Stat. Art. 6228a-5 requires the TRS Board of Trustees to set the product registration fee in the reasonable amount necessary to recover the cost to TRS of establishing and maintaining a list of registered 403(b) investment products. The new rules tier allowable expense ratios by asset class and require submission of additional product information, which necessitates updates to the PRS. Additionally, PRS updates have been identified that will benefit the industry and make it easier for certified companies to register products. Due to the cost of these updates, the product registration fee is set at $10,000 per five-year period.
Non-Annuity Certification Disclosures
Currently, Tex. Rev. Civ. Stat. Art. 6228a-5 establishes some minimum customer service requirements for annuity companies, but the statute is silent regarding customer service requirements for non-annuity companies. In an effort to determine customer service offerings in the non-annuity market and to assess whether companies are treating customers as retail or institutional investors, the rules have been amended to require non-annuity companies to disclose to TRS their customer service offerings in the certification application. Certification of a non-annuity company is not conditioned on whether or not the company answers “yes” or “no” to any of the questions in the customer service disclosure.
Changes to Maximum Fees, Costs and Penalties for Products and Investment Options Registered On or After October 1, 2019 and Sold On or After November 16, 2019
See Tables 1 and 2 below for a detailed summary of amended fees.
Products or investment options that are registered before October 1, 2019 and sold through salary reduction agreement before November 16, 2019 will be restricted as of November 16, 2019.